Studies now show that South Africa has become, as measured by the Gini Coefficient, more unequal than Brazil – the country once rated as the most unequal in the world. The Gini Coefficient measures the inequality of income distribution within a country.
But, while South Africa’s Gini number seems to be getting worse, Brazil’s is slowly but clearly improving. As a result, some local commentators are beginning to ask what Brazil is doing to achieve this (and, at least implicitly, what South Africa should copy).
Thus, University of Cape Town economics professor Haroon Bhorat has, according to press reports, focused on two particular Brazilian policies – ‘conditional cash transfers’ (CCTs) under which poor Brazilians get what, in South Africa, are called social grants, in return for ensuring that their children go to, and stay at, schools (and get vaccinated); and land reform. Bhorat apparently believes the first of these has resulted in a significant improvement in the quality of education in Brazil and that the second has greatly increased the number of people involved in farming.
On the other hand, Presidency deputy director-general Alan Hirsch argued that the improvement in Brazil’s Gini rating is due to “more successful industrial policies”. Outgoing Presidential policy adviser Joel Netshitenzhe optimistically suggested that South Africa’s ranking may be inaccurate because the Gini Coefficient may not include such government support to the poor as free basic water and electricity, access to healthcare, and social grants. And Minister in the Presidency in charge of the National Planning Commission Trevor Manuel has cast doubts on the relevance of the Gini data.
However, Bhorat is completely wrong about the quality of public education in Brazil. The CCTs have significantly increased the time poor children spend in school, which is good, but while the quantity of education has increased, the quality has not (although the country does have an adult literacy rate of 90%).
Regarding land reform, under Brazilian law the State can compulsorily buy land which is deemed unproductive (there are formal defini- tions to determine this) and redistribute it.
Between 2003 and 2008, 43-million hectares were redistributed to 519 000 families, which amounts to 59% of the total number of fami- lies settled during the entire history of land reform in Brazil. Between 2003 and 2009, the federal government provided $2,4-billion in loans to the beneficiaries of land reform. But Brazil has a population of some 190-million, so clearly land reform brings only limited socioeconomic benefits at national level.
Hirsch credits Brazil’s industrial policies. One wonders which ones he is referring to. Brazil has had industrial policies for decades, and, in addition to triumphs, there have been disasters. For example, it is now forgotten that in the 1970s Brazil was a world leader in what were then called minicomputers, with a company called Cobra. Effectively, this lead was squandered and Cobra effectively destroyed because of erroneous industrial policy.
The problem with Netshitenzhe’s argument is that it could be applied to many other countries as well – even it all out, and South Africa is still likely to come out very badly.
Also, Brazil has a Unified Health System, as it is called, which provides universal health- care, free at the point of access. Interestingly, doctors working in the poorest parts of Brazil receive incentives and are paid up to three times as much as doctors working in the richest areas.
Brazil has indeed succeeded in significantly reducing poverty – 30% of the country’s popu- lation was classified as poor last year – and has begun to erode inequality. But this is the result of 16 or more years of continuity in policies, between two administrations, from different political parties, with different political philo- sophies – but united in putting results ahead of ideology.
It is also the result of both macroeconomic and social policies. From 1994 to 2008, Brazil saw a major wave of economic restructuring: hyperinflation was ended, and State-owned monopolies in energy, telecommunications and railways were broken up and privatised, and their markets deregulated. Other major (but not all) State-owned companies (most notably steelmaker CSN, aircraft manufacturer Embraer and mining group Vale) were also sold off.
The result was to generate huge (if one-off) revenues for the State, bring in many billions of dollars in foreign investment, and replace drains on the treasury with sustained gains. For example, CSN went from being a State-owned loss maker that needed constant bailing out by the taxpayer to being a profitable private-sector company paying taxes, even though it has no monopoly. Although the current administration of President Luiz Inácio Lula da Silva halted privatisations on entry into office in 2003, it did not reverse any of them (indeed, it has recently restarted privatisations, concessioning federal highways to the private sector).
The overall effect has been to hugely stimulate the Brazilian economy. From 1987 to 1997, Brazil’s annual average gross domestic product growth rate was just 1,9%, but from 1997 to 2007, it averaged to 2,8%. For 2006, the figure was 3,7% and for 2007, 5,4%. This growth has created millions of formal jobs. While the current global crisis has affected Brazil, the impact has been mild – the first time that Brazil has been able to easily ride out a major global economic crisis.